Measuring the Value of LP Fund-Selection Skill
Using the IAS fair comparison framework, this publication explores the impact of choices an investor in private markets must make.
Many CIOs are open to a multi-manager structure but are faced with the task of deciding on the ideal number of managers to hire, as well as the appropriate allocation across different managers and strategies.
In turbulent market environments, multi-manager portfolio construction becomes most important. CIOs must efficiently combine managers of different strategies to construct diverse portfolios. However, new research shows that a combination of randomly selected active managers can decrease exposure to idiosyncratic and manager-specific ideas that would otherwise help to improve diversification and optimize portfolio allocation.
PGIM IAS shares its Manager Allocation Programming (MAP) tool to help CIOs efficiently combine managers of different strategies and achieve the optimal trade-off between the active risk and return of portfolios. The new methodology guides CIOs to allocate capital across managers while incorporating their preferences for manager characteristics at the portfolio level. Based on MAP, CIOs can identify the best number of managers and align specific manager selection skills, helping to balance diversification benefit and cost.